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Equity General Distribution
Equity Basics
LCEC's Board of Trustees approved a final retirement distribution of equity for customer accounts that have been closed since the year 2002. This final retirement distribution took place in April, 2010. The board also approved a general distribution to active and inactive customers, which occurred in July, 2010.
Ownership equity in LCEC is not equivalent to cash or liquid assets. Equity represents members’ investment in LCEC’s electrical system in the form of substations, poles, lines, transformers and other facilities. The amount of equity allocated to each member each year is calculated based on the amount of electricity used by the member in the period. Equity equates to financial strength for LCEC members. It allows for improvements in the delivery of power and service through capital projects without incurring costly loans. LCEC is proud of the financial strength that has allowed us to return equity to our customers. It is one of the benefits of belonging to a financially stable electric cooperative. Only half of the electric cooperatives in the United States are able to return equity to members.
What is equity capital?
Equity capital represents the customers’ share of net margins. Capital credits are the margins (profits) that are left over after all operating expenses are deducted from revenue. Equity capital is used to partially finance long-term capital projects, and a minimum level is required by lenders in order to extend loans to LCEC. A higher level of equity capital can reduce the cost (interest rate) of borrowed money.
What are net margins?
Net margins are what remains after expenses are deducted from the revenue earned by LCEC during the year.
Do all customers receive equity capital?
Customers are allocated equity capital annually if revenues exceed expenses. The amount of equity is determined by the amount of electricity the customer purchased during the year. The allocated equity capital accumulates in the individual member’s equity account.
If a customer has equity credit allocated to their account, why can’t they receive it in a lump sum?
The equity account is not a cash account; it reflects the value of ownership (equity) in LCEC and is invested in equipment and facilities. Equity also helps finance capital improvements such as electrical lines, poles, transformers and substations.
Is equity paid to customers every year?
Annually, the board of directors reviews LCEC’s financial position in order to determine if a portion of equity capital can be distributed (paid out) to members. There are certain mortgage clauses from our lenders that require LCEC to maintain minimum levels of specific financial ratios.